2026 Tax Brackets Released: New IRS Rates & OBBB Deduction

The Internal Revenue Service (IRS) released the annual inflation adjustments for the tax year 2026 today, confirming significant increases to standard deductions and key credits under the provisions of the "One, Big, Beautiful Bill" (OBBB). Specifically, Revenue Procedure 2025-32 details changes to more than 60 tax provisions, which will apply to income earned in 2026 and tax returns filed in 2027. While the adjustments primarily aim to combat inflation, the OBBB has simultaneously permanently locked in or enhanced several favorable tax structures. Notably, these include an increased estate tax exclusion and a massive boost to employer-provided childcare credits. Standard Deductions See Healthy Increase First, for tax year 2026, the standard deduction will rise across all filing statuses, providing a larger shield for taxpayers against taxable income. Married Filing Jointly: Increases to $32,200 (up from $31,500 in 2025). Single & Married Filing Separately: Increases to $16,100 (up from $15,750 in 2025). Heads of Households: Increases to $24,150 (up from $23,625 in 2025). Additionally, the IRS noted that the OBBB had already raised the baseline for 2025, setting the stage for these 2026 inflation-adjusted figures. 2026 Marginal Tax Rates Regarding tax rates, the top marginal tax rate remains at 37% for individual single taxpayers with incomes greater than $640,600 ($768,700 for married couples filing jointly). The complete bracket structure for 2026 is as follows: 37%: Incomes over $640,600 (Single) / $768,700 (Joint) 35%: Incomes over $256,225 (Single) / $512,450 (Joint) 32%: Incomes over $201,775 (Single) / $403,550 (Joint) 24%: Incomes over $105,700 (Single) / $211,400 (Joint) 22%: Incomes over $50,400 (Single) / $100,800 (Joint) 12%: Incomes over $12,400 (Single) / $24,800 (Joint) 10%: Incomes of $12,400 or less (Single) / $24,800 or less (Joint) Key Credits and Exemptions Beyond deductions and rates, several credits and exclusions have been adjusted to reflect inflation or enhanced by the OBBB legislation. Estate Tax Credits: For instance, the basic exclusion amount for estates of decedents who die in 2026 jumps to $15,000,000, a significant increase from $13,990,000 in 2025. Employer-Provided Childcare Tax Credit: Similarly, in a major policy shift under the OBBB, this credit sees a substantial enhancement. The maximum credit increases from $150,000 to $500,000 ($600,000 for eligible small businesses). Earned Income Tax Credit (EITC): Furthermore, the maximum EITC amount for qualifying taxpayers with three or more qualifying children is $8,231, up from $8,046 in 2025. Adoption Credits: Likewise, the maximum credit allowed for qualified adoption expenses rises to $17,670, with a refundable portion of up to $5,120. Alternative Minimum Tax (AMT): Finally, the exemption amount for 2026 is $90,100 for unmarried individuals (phasing out at $500,000) and $140,200 for married couples filing jointly (phasing out at $1,000,000). Health, Benefits, and Foreign Income Health FSA: The dollar limit for employee salary reductions for contributions to health flexible spending arrangements increases to $3,400 (up $100). Moreover, the carryover maximum for plans that allow it increases to $680. Transportation Benefits: Additionally, the monthly limitation for qualified transportation fringe benefits and qualified parking rises to $340. Medical Savings Accounts (MSA): Self-only coverage: Annual deductible must be between $2,900 and $4,400. Max out-of-pocket expense is $5,850. Family coverage: Annual deductible must be between $5,850 and $8,750. Max out-of-pocket expense is $10,700. Foreign Earned Income Exclusion: Also, this exclusion increases to $132,900, up from $130,000 in 2025. Annual Gift Exclusion: In contrast, the annual exclusion for gifts remains at $19,000. However, the exclusion for gifts to a non-citizen spouse increases to $194,000. Unchanged Provisions Conversely, certain items remain static by statute: Personal Exemptions: These remain at 0 for tax year 2026, a provision from the 2017 Tax Cuts and Jobs Act made permanent by the OBBB. Itemized Deductions: As for Itemized Deductions, the limitation on itemized deductions remains eliminated, although a cap on the tax benefit still exists for those in the highest (37%) bracket. Lifetime Learning Credit: Similarly, the phase-out thresholds remain unadjusted at a MAGI between $80,000 and $90,000 ($160,000–$180,000 for joint returns). Related https://coffeenblog.com/irs-and-student-loans-guide-to-interest-deductions-credits-and-tax-offsets-in-2026